Bloomberg

Bloomberg | Quint is a multiplatform, Indian business and financial news company. We combine Bloomberg’s global leadership in business and financial news and data, with Quintillion Media’s deep expertise in the Indian market and digital news delivery, to provide high quality business news, insights and trends for India’s sophisticated audiences.

Smurfit said its directors unanimously spurned the revised cash-and-stock offer of 37.54 euros per share as inadequate. The company’s stock traded as low as 33.34 euros in Dublin while International Paper climbed as much as 4.8 percent in New York, its biggest intraday gain in two months, indicating shareholders see any chance of a deal receding.

With International Paper’s shares down 9.6 percent this year, shareholders would take a dim view if management increased its offer substantially, according to William Heffernan, an analyst with Cantor Fitzgerald in Dublin.

“There appears to be a gulf between what Smurfit Kappa management see as fair value and what International Paper is offering,” he said by phone. “International Paper would need to increase the cash element significantly, and the offer would need to be above 40 euros per share to get things moving in a serious way.”

International Paper has tried twice in about three weeks to acquire the Irish maker of cardboard boxes and paper bags that would bring it a wider European footprint. It already manufactures one in three cardboard boxes in the U.S., and the purchase of Smurfit would make it the No. 1 producer in Europe. The companies are benefiting from the rise in e-commerce that has boosted the need for goods to be packaged before delivery.

Cost Savings

Memphis, Tennessee-based International Paper said in a separate statement that it’s still willing to move “quickly and cooperatively” to engage with Smurfit. The original offer valued the company at 36.46 euros per share.

Under the terms of the revised bid, Smurfit shareholders would receive 25.25 euros in cash and 0.3028 new shares of International Paper stock for each Smurfit share they held. The U.S. company says it has identified at least $450 million in savings over four years.

Those synergies are “comfortably in the historical range of deals for the sector” and will help International Paper’s share price, David O’Brien, an analyst at Goodbody Stockbrokers in Dublin, said in a research note.

At the current bid price, a takeover of Smurfit Kappa would rank as the second-largest deal in the cardboard-packaging and paper-products industries, coming after Koch Industries Inc.’s acquisition of Georgia-Pacific LLC in 2005 for about $12.6 billion, according to data compiled by Bloomberg. U.S. producer WestRock Co. agreed to buy KapStone Paper & Packaging earlier this year for about $3.4 billion.

This year, there have been more than 40 cardboard-packaging and paper-product deals, including the bid for Smurfit, according to the Bloomberg data.

Smurfit may attract more bidders, Cord Prinzhorn, chief executive officer at industry rival Prinzhorn Holding GmbH, said in an interview earlier this month.

“Even if International Paper doesn’t come back, that may not be the end of it,” said Cantor’s Heffernan. “This is an industry undergoing consolidation, and Smurfit is an attractive target.”

Smurfit has 46,000 employees across 35 countries in Europe and the Americas and had sales of 8.6 billion euros in 2017. International Paper has 52,000 workers and operations spanning the Americas, Asia, Africa, Europe and the Middle East, according to its website.